N.L. signs historic deal to sell Churchill Falls power to U.S.

April 2, 2009 - The Associated Press

ST. JOHN'S, N.L. - Newfoundland and Labrador has reached a deal to transmit hydroelectricity through Quebec and sell it to lucrative North American markets, giving the province a new foothold in power-hungry jurisdictions, Premier Danny Williams said Thursday.

Quebec regulators approved an application by Nalcor Energy, Newfoundland and Labrador's energy corporation, to send power from its Churchill Falls hydroelectric project in central Labrador and sell it.

The move marks the first time Newfoundland has been permitted to sell electricity using Hydro-Quebec transmission lines. The agreement comes after four decades of shaky relations between the two provinces since the much-maligned Churchill Falls contract of 1969.

"This is truly a historic and a momentous occasion for the people of our province," Williams told a news conference.

"We understand power from Labrador today is being sold directly into the United States, destination New York. Newfoundland and Labrador is now taking a bite out of the Big Apple."

The five-year agreement with Hydro Quebec will cost Newfoundland and Labrador $19 million rate per year in transmission fees, a fixed rate.

Since 1998, Newfoundland and Labrador sold a portion of its 300 megawatts of excess power from Churchill Falls to Quebec, but it could not wheel that power through the province and sell it to other markets.

The agreement was not renewed this year and, as of Wednesday, 130 megawatts of that surplus hydroelectricity was sold to Halifax-based power broker Emera Energy Inc. (TSX:EMA), which in turn is selling it to New York. The deal with Emera lasts two years.

"Our confidence has grown," said Nalcor Energy president Ed Martin.

"We've done a bunch of historic work indicating that if we had this type of arrangement over the past five to 10 years, we would've made upwards of maybe 40 to 45 per cent more than we would've under other arrangements."

At peak, the province will be able to sell 250 megawatts of energy to the North American grid, Martin said.

Based on current electricity prices, Newfoundland and Labrador could earn about $40 million to $80 million in profits annually, Martin said.

A spokesman for Hydro-Quebec said there was nothing unusual about the deal because the utility is open to all power providers.

"What we see today is that there's a new player that's doing it, but it's not a new thing for us," said Marc-Brian Chamberland.

Chamberland acknowledged that Hydro-Quebec would lose "a really small amount" of money under the deal because it has lost the ability to sell Churchill Falls electricity itself to New York. But he said he couldn't reveal how much money Hydro-Quebec has lost, saying that figure is the subject of a commercial transaction.

Currently, prices for electricity are fairly low, but Newfoundland and Labrador is banking on their return to grow over the long term.

"We've been on the outside of the ring looking in," Martin said. "In the long run, we're going to do much better."

The amount of 130 megawatts to 250 megawatts available for sale will satisfy the needs of 100,000 homes on average, Martin estimated.

"It is not a massive amount of power and we won't pay off our debt with it," Williams added.

"This is about much more than that. This is about our province finally acting in a strategic manner and going through proper processes to wheel our power through our neighbouring province of Quebec."

The transmission of power through Quebec has long been point of contention between Quebec and Newfoundland and Labrador.

Under the deal to develop Churchill Falls, which doesn't expire until 2041, Quebec has reaped at least $19 billion in profits while Newfoundland has pocketed only about $1 billion, according to the Newfoundland and Labrador government.

The new energy deal comes amid the backdrop of a growing dispute over Atlantic Canadian energy projects.

Earlier this week, New Brunswick Premier Shawn Graham told a business audience in Toronto that his Atlantic counterparts can't simply expect to build new energy projects and then ship their electrical power to the United States through his home province.

Williams dismissed Graham's remarks as inflated political rhetoric.

"There's no point in people getting territorial on us and saying we're going to close off our borders, we're going to generate our own power and then push it out through, because that's just not the way it works," Williams said.

"What he obviously needs to understand, or maybe he understands it and is not expressing it, but in fact, we have a right to go through there ... if we're in the queue properly and we can get the access through, then we pay New Brunswick a fair tariff."

Nalcor Energy is also proceeding with the development of the Lower Churchill hydroelectric project, and Williams said the new deal enhances the province's leverage in negotiating a deal for that project.

It still has a number of regulatory hurdles to pass, but if approved, the Lower Churchill project could transmit 3,074 megawatts of energy.